Contracts: authority

by Practical Law Commercial

A practice note that explains the English common law and statutory rules on contractual authority, which determine if a person can enter into an enforceable contract on behalf of another entity. It considers the principle that a contract is only enforceable if the person entering it on another person or organisation's behalf has the requisite authority to do so. It explores the main types of authority, including express and implied actual authority, and apparent (or ostensible) authority. The note considers ratification, a process which allows a principal to retrospectively approve an agent's unauthorised actions, and considers the burden of proof in disputes. It further details the specific rules that apply to various entities, including companies under the Companies Act 2006 (CA 2006), partnerships, limited liability partnerships (LLPs), and charities. It also discusses statutory protections for third parties dealing with these entities in good faith. Finally, the note offers practical tips for minimising the risk of a contract becoming unenforceable due to an agent's lack of authority.